Question
A company is offered a trade credit term of "2/10 net 30" by its supplier. If it doesn't take the discount, what is the annualized cost of forgoing the discount?
Solution
Formula: Cost = [Discount / (100 – Discount)] × (360 / (Full Period – Discount Period)) = [2 / 98] × (360 / 20) = 0.0204 × 18 = 36.7%
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